Management Consulting/Intl Mktg

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Expert: Leo Lingham - 10/15/2013

QuestionYou are an entrepreneur manufacturing food products such as jam, squash and pickles etc.
After gaining good response from local markets, you want to expand your operations in foreign markets. Identify the organizations you would approach that can facilitate your
export efforts. Briefly explain the support you are likely to get from these organizations.

AnswerYou are an entrepreneur manufacturing food products such as jam, squash and pickles etc. After gaining good response from local markets, you want to expand your operations in foreign markets. Identify the organizations you would approach that can facilitate your export efforts. Briefly explain the support you are likely to get from these organizations.
About OVERSEAS distributors
Advantages of a OVERSEAS distributor
• The exporter has one large customer who supplies many smaller end customers in the market.
• The exporter maintains some control over distribution.
• The distributor provides back-up service to clients.
• The distributor holds stock in the market to reduce order lead time for customers.
• The distributor helps pay for and undertake marketing and promotion of your product in the market.
• The distributor develops a customer base for your product.
• The distributor handles more of the in-market work, saving you both time and costs.
• In-market risks are largely carried by the distributor.
• The distributor may provide warranty and product services.
Disadvantages of a distributor
• You have no control over the selling process.
• The costs of selling through a distributor can force the product out of market competition: for example, a distributor may add up to a 50 per cent mark-up, or more, on your product before it reaches a retailer.
• The distributor and sales staff will be less knowledgeable about your products than your own people.
• You can become removed from the market and not have firsthand knowledge of conditions.
• You may not know who your customers are.
• Because a distributor shares responsibility for marketing and promotion, you may not retain total control over the branding of your product.
• If the distributor is a wholesaler rather than a specialised master distributor, they may not sell as effectively as other wholesalers.
• The distributor may not have the sales force for new product introductions in larger markets.
• The distributor may represent multiple products, so attention and time may be divided away from your product.
• Sales-rights to your product are a valuable ‘right’ and should not be surrendered without a full analysis of the available options.
• Your distributor may be difficult to ‘disengage’ if you are unhappy with their service.

Choosing a distributor – points to remember
Almost all companies engaged in international trade work with some distributors overseas. Here are some important points to remember in dealing with distributor:
• Select your distributors – don’t let the distributors select you.
• Look for distributors capable of developing your markets, not just selling your products.
• The skills, qualities and network which each distributor can bring to your relationship may be different – make sure you discuss your expectations so that these are clearly understood.
• Never assume a distributor will undertake a task without discussing it first.
• Set clear performance criteria in your distributor’s agreement and monitor these closely.
• Get to know the distributor well before signing an agreement.
Choosing a distributor
Here are some suggestions on the type of questions you could prospective distributors:
• To find out about a distributor’s history – ask:
What financial resources do you have? What is your credit rating? (There are credit agencies that can provide a report on potential partner credit ratings.)
• To check a distributor’s relevant product knowledge – ask:
What is your experience with similar product or service lines? What would you consider your strengths in marketing and customer service?
• To check a distributor’s management capability – ask:
How long has this distribution company been in business? What have been some of your most outstanding successes?
• To check a distributor’s compatibility with your company – ask:
What is the size of this business? What systems do you use? How up to date is your company’s computer equipment, training and knowledge? Have you worked with any other Australian companies? If so, which ones, and for how long? What languages do you [the head of the company] speak?
• To check a distributor’s product mix – ask:
What do you like about my product? What range of products do you cover? Do you represent any other products which conflict with mine? What are your sales projections for my products? (Ascertain that these are realistic.)
• To check a distributor’s distribution network – ask:
What is your geographical coverage? How often do you personally get to each of your markets? Do you have staff in place in each of these markets? Have you ever faced political trouble in the markets you cover? If so, what was the result? Have you ever been forced out of a market? If so, why?
• To check a distributor’s sales capability and marketing policies – ask:
What sales capability does your business have? What marketing policies do you use? How many staff do you have? Where are your staff members located? What languages do they speak? What experience did they have before joining your company? What level of education do they have? What incentives do you give them? How do you supervise them? Will they be trained about my products? Are they currently working on any of my competitors’ products?
• To check a distributor’s promotional expertise – ask:
What is your approach with marketing budgets? What are some of the successes you have had in marketing other company’s products? Have you ever been called upon to deal with the media in any of the markets over the products you cover? If so, what was the outcome?
• To check a distributor’s ease of location and facilities – ask:
Where and what facilities do you have for customer access? Where is your warehouse? How large is it? How is it protected? What services do you provide for your customers from your warehouse?
Points to consider when entering into a distributor agreement
Your distributor agreement should set out all the terms and conditions of the distributor/supplier relationship, with no ambiguities or areas that are unclear.
Before drafting an agreement, you should agree exactly who does what within the distributor/supplier relationship.
It is then imperative to engage legal advice when having the agreement drawn up.
Drafting agreements and making changes when two parties have differing views on core issues can be a waste of time and money. It is wiser to agree on the big issues first, then start the detailed work of the actual contract.
The key issues you should discuss with your potential distributor, and agree at a high level before entering into a legal agreement, could include:
• The product range
• What you, the exporter (supplier), will provide: for example, printed brochures, price list, new product briefings, product training, and so forth.
• Supply of samples: at what price, who pays for their cost and freight, the length of time samples will be available, and the process and payment for their return.
• The territory covered: the geographical area and market segment.
• How the goods will be supplied.
• How online sales in the territory will be managed.
• Terms of payment.
• Timeframe of the agreement. For example: one, two, three or five years?
• Reporting: monthly or quarterly, and the content of the reports.
• Communications: how the timeliness of communications on major issues will be dealt with. For example; delivery delays or major customer issues.
• Customer service and warranty.
• Brand management: you can set some controls over the use of your brand.
• Ownership of trademarks and intellectual property.
As with working with agents, one of the difficulties any exporter is confronted with when drawing up a contract is the lack of uniform regulations around the world. This means that parties must refer primarily to the rules set out in their agreements, which in turn makes the careful drafting of such contracts absolutely vital.

The key factors to consider when choosing an
distributor
The key factors to consider when selecting a distributor to
represent you in a particular overseas market are:
●Are they well established in your target market?
●Do they have a good reputation with key customers/potential
customers?
●How to they compare with their main competitors?
●Are they located in the market’s major business centre?
●Do they have good coverage of the rest of the market?
●What product lines do they have?
●Will your product ft in well with their ex
Will your product ft in well with their existing product portfolio?
●Do they sell any competing lines?
●Do they have a good and experienced sales team?
●Do their salespeople have experience of selling your type of product?
●Do they have experience of selling to your target industries?
● Is their sales team well managed, with incentive schemes based on
achievement?
Are you confident
Influence in the market Extremely Important
The communication with and through the overseas distributor
Ability of the overseas distributor to solve problems in the market
Reputation of the overseas distributor
The overseas distributor professional background and experience in the local market
The power of the overseas distributor in the market
The overseas distributor performance
The overseas distributor’s market coverage
The marketing capability of the overseas distributor
Overseas distributor track record
The business age of the overseas distributor

Factors that represent the overseas distributor’s
commitment to the manufacturer

Extremely Important Mean
The overseas distributor’s loyalty
Mutual trust with the overseas distributor
The overseas distributor
commitments to on time payments
The overseas distributor
commitment to the contract and agreement
Continuity of a relationship
with the overseas distributor
The overseas distributor
responding to your company’s expectations
The overseas distributor
cooperative spirit in marketing
The overseas distributor
investment in the
relationship with your company
The overseas distributor commitments to sales
volume

The overseas distributor financial strength
Extremely Important
The financial reputation of the overseas distributor
On time payment by the overseas distributor
The payment policies of the overseas distributor
Cash flow cycle of the overseas distributor
The financial statements of the overseas distributor
Overseas distributor assets

Logistics capabilities Extremely Important
The overseas distributor
performance to fulfill customers’ orders
The overseas distributor ability
to provide rapid response to the
customer’s requests
The overseas distributor
accuracy in shipping customers’ orders
The overseas distributor
efficiency in delivery time to the end user
The overseas distributor
efficiency in controlling or
minimizing the total cost of distribution
The overseas distributor ability
to handle shipments
The overseas distributor ability
to provide local warehouses
The overseas distributor
inventory management skills
The overseas distributor ability
to accommodate special orders
The overseas distributor’s
ability to provide innovative
logistics solutions

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DISTRIBUTOR Channel Design Influences
• Customer characteristics
o The demographic and psychographic characteristics of targeted customers form the basis for channel design decisions.
o Focusing on customer needs: why, when, and how they buy helps to generate a competitive advantage.
• Culture
 The existing channel structures or the distribution culture.
 The functions performed by the various types of intermediaries.
 Foreign legislation affecting distributors and agents
• Competition
o Channels used by competitors may be the only product distribution system that is accepted by both the trade and consumers.
o If distribution channels used by competitors are not satisfactory, the exporter can:
 Form jointly owned sales companies with distributors to exercise more control.
 Seek a good company fit in terms of goals and objectives.
Channel Design Criteria
• Company objectives: market share and profitability
• Nature of the product: consumer, industrial
• Capital: financial requirements for setting up a channel system
• Cost: of maintaining a channel
• Coverage: intensive, selective, exclusive
• Control: depends on company plans for the future
• Continuity: expressed thru visible market commitment
• Communication: for channel coordination
Selection of Intermediaries
• Two basic decisions:
o Determining the type of intermediary relationship
 Distributorship
 Agency relationship
o Determining the type of exporting function
 Indirect exporting
 Direct exporting
 Integrated distribution
The distributor agreement
o Some important terms to be included:
 Contract duration.
 Geographic and customer boundaries.
 Method of compensation.
 Products and conditions of sale.
 Means of communication between parties.
 Process of dispute resolution/dissolution